Slideshow: Worst-Performing VC-Backed IPOs of Chinese Companies

Last autumn was a busy and generally successful period for venture-backed Chinese companies that went public on U.S. Exchanges.

But now that many of those companies have been public for six months or more, ROI prospects appear to have dimmed for insiders who may be looking to sell.

That’s the conclusion I drew from my review of 14 venture-backed Chinese companies that carried out IPOs on U.S. exchanges between September and the end of November.

Out of the 14, five were trading at less than half their peak values since going public. Another nine had declined at least 25% from their peak value.

Interestingly, several companies that are substantially off their peaks are back around the levels at which they originally priced their offerings. That indicates that while investors still see significant value in those companies, frenzied price pops have little staying power. An example of this is ChinaCache International, a content delivery network that priced shares at $11 for its October IPO. Its shares soared above $30 in the following weeks, but have since come down to around $12. In other cases, however, companies are trading well below initial price points.

Of all the VC-backed Chinese companies that have gone public on U.S. exchanges in the past six months, the following five have performed the most poorly.

[slideshow]

[slide title=”Mecox Lane”]

Description: Online retailer of women’s clothing, housewares and other products.

Ticker: MCOX

Headquarters: Shanghai

IPO Details: Mecox priced 9.4 million American Depository Shares (ADS) at $11 on Oct. 26 (above its planned range of $8 to $10) and they shot up 57% to $17.26 on their first day of trading.

Status Report: Shares closed at $3.59 on Tuesday, May 24, following a 28% one-day plunge. The company reported on Monday that its revenue dropped 2.4% year-over-year to $48.1 million from $49.3 million. Its net loss, meanwhile, increased 153% year-over-year to $3.9 million from $1.5 million.

ROI for Backers: Sequoia Capital led a $79.91 million round in Mecox in February 2008 and owned 252.9 million shares (62.5% of the company) at the time of the IPO. That stake was worth $590 million at the end of October. Currently, it’s worth about $130 million.

[slide title=”Country Style Cooking Restaurant Chain Co.”]

Description: Fast-food restaurant chain

Ticker: CCSC

Headquarters: Chongqing, China

IPO Details: Shares priced at $16.50 for the company’s Sept. 28 IPO, then rocketed above $26 in first-day trading, reaching a peak in later weeks of $36.45.

Status Report: The stock is trading a little over $12.

ROI for Backers: Sequoia Capital China and SIG China Investments One Ltd. are still sitting pretty, given that they invested a combined $20 million in Country Style Cooking and now hold shares worth a combined $72 million. The stock exited its lockup period in late March. Sequoia and SIG each owned 12 million common shares, or 12% of the company post-IPO. At the ADS price of $28.59 on Sept. 28, both Sequoia’s and SIG’s shares were worth about $86 million. At the current price of $12 per ADS, Sequoia and SIG each hold shares worth $36 million.

[slide title=”BitAuto Holdings Ltd.”]

Description: Provides online content and marketing for the Chinese auto industry.

Ticker: BITA

Headquarters: Beijing

IPO Details: Raised $127 million in a Nov. 17 offering, pricing shares at $12 a piece. The stock peaked shortly afterward at close to $14. (Each ADS was equal to 1 common share.)

Status Report: Shares are trading around $7, a couple weeks after a quarterly report in which the company said its first quarter revenue rose 57% year-over-year to $16.7 million.

ROI for Backers: The VCs are still ahead, given that they collectively invested about $41 million in BitAuto and their combined shares are now worth close to $122 million. At the Nov. 30 closing price of $12.85, DCM’s 7.2 million shares (17.5% post-IPO stake) were worth $92.7 million; Legend Holdings’ 4 million shares were worth $52 million; Bertelsmann Asia Investment’s 3.5 million shares were worth $44.8 million; and Nippon Venture Capital’s 2.7 million shares were worth $34.3 million. At $7 per share, DCM’s stake is now valued at about $50 million; Legend’s stake is worth about $28 million; Bertelsmann’s stake is worth about $24 million; and Nippon’s stake is worth about $19 million.

[slide title=”Global Education & Technology Group”]

Description: Education program provider focused on foreign language training and test preparation.

Ticker: GEDU

Headquarters: Beijing

IPO Details: Raised $67 million in an Oct. 8 IPO, pricing its ADS at $10.50 each. The shares closed at $9.93 at the end of October. (Each ADS is worth 4 ordinary shares.)

Status Report: Shares are trading around $5.60, after the company reported first quarter revenue of $11.7 million, up 24% from a year ago, and net income of $1.8 million, up 78% from a year ago.

ROI for Backers: SAIF Partners held 27.9 million shares (for a post-IPO stake of about 28%) at the time of the IPO. Those shares were worth $69.4 million on Oct. 31. Today, those shares are worth about $39 million. SAIF invested $30 million in the company over two rounds, according to Thomson Reuters (publisher of peHUB).

[slide title=”SinoTech Energy”]

Description:Provides drilling and other services to oil companies.

Ticker: CTE

Headquarters: Beijing

IPO Details: Raised $167.8 million in its Nov. 3 IPO, pricing shares at $8.50 each.

Status Report: Shares are trading around $5.26.

ROI for Backers: Sequoia Capital had a 3.9% post-IPO stake in company, valued at around $20 million at the time of the offering. At the company’s current valuation of just over $300 million, the stake is worth about $12 million.
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